DD 9/22/06 Mississippi slams the door on impact fees for building permits, Katrina notwithstanding.

Daily Development for Friday, September 22, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

MUNICIPAL LAW; IMPACT FEES: Mississippi slams the door - hard - on impact fees associated with building permits. City of Ocean Springs v. Homebuilders Ass'n of Mississippi, Inc., 932 So. 2d 44 (Miss. 2006).

City of Ocean Springs v. Homebuilders Ass'n of Mississippi, Inc., 932 So. 2d 44 (Miss. 2006).

City adopted ordinances imposing impact fees as a condition of obtaining a building permit or filing a final plat. The Homebuilders Association of Mississippi, Inc. and a number of individual builders filed a bill of exceptions in the Circuit Court of Jackson County challenging the adoption of the ordinance.

The City argued that the imposition of impact fees was a permissible exercise of its police power, was within the authority granted to the City by the home rule statute, and also was authorized by the general planning and zoning statutes. The homebuilders argued that municipalities did not have the authority to impose impact fees. In particular the homebuilders relied on Article 4, Section 80 of the Mississippi Constitution, which has been interpreted to mean that the taxing authority is reserved to the legislature and that the power to tax must be specifically granted and never inferred.

The Circuit Court held that the impact fee ordinance imposed a tax and that the City did not have the authority to impose such a tax. The Circuit Court enjoined further collection of the tax. The Circuit Court also ordered the City to submit an accounting of fees already collected and a plan for refunding the fees, which here affirmed. 

Reporter’s Comment 1: The City did everything that a municipality could do to try to make its impact fee valid. The City hired prominent national consultants to prepare a report evaluating the city's existing facilities and needs and established impact fees proportionate to those needs. The impact fees were deposited into a separate account. And of course there is a natural sympathy for all of the municipalities along the Coast following Hurricane Katrina and a recognition that these municipalities face staggering costs in rebuilding infrastructure damaged by the storm. The Mississippi Supreme Court nevertheless found that the impact fees were taxes rather than fees because the impact fees were not based on the administrative expense the City incurred in issuing building permits and because there was no specific benefit conferred on the developer. Lest someone try to draft around this decision, the court stuck the fork into impact fees generally: "We conclude there is no con!

 stitut
ional basis, legislative enactment, or common law doctrine, which empowers cities to adopt and impose development impact fees."

Reporter’s Comment 2:   Litigation over the authority of municipalities to impose impact fees is a national phenomenon. The Supreme Court's decision cites a number of these cases. The decision also gives an overview of the bitter litigation in the state and federal courts between homebuilders and the City of Madison over impact fees.

Reporter’s Comment 3:  According to newspaper reports, municipalities are working to get the legislature to authorize municipalities to impose impact fees. Legislators also undoubtedly are hearing the homebuilders' position. This should be a hot topic in the next legislative session. Hurricane Katrina will have an impact. In footnote 3 of the decision, the Supreme Court quoted a portion of Governor Barbour's State of the State speech on January 6, 2006, in which he stated he would ask the legislature to authorize the southernmost six counties to impose impact fees to help recover from the hurricane.

Reporter’s Comment 4:   The City's obligation to refund impact fees seems like a really big deal to the Reporter. Homebuilders probably will use this case as a basis for demanding refunds from other municipalities that have collected impact fees for years. Without having researched the issue, it seems to the editor that the legislature cannot do anything to help municipalities with this problem of refunding impact fees illegally collected. In most cases, haven't homebuilders passed the impact fees on to the people who purchased the homes and so recovered all or part of this cost?

Editor’s Comment: These impact fees were tied to building permits.  Is it a separate question is impact fees are tied to zone changes?  Building permits usually are mandatory - in the sense that the developer gets one if it meets set clear conditions.  Zoning changes and variances usually are not required to be granted at all or, in the case of variances, are often subject to such broad requirements that they might as well be completely at the option of agency.  Can a developer tie granting of such permissions to payment of sums necessary to alleviate the impact of the proposed project on the community?  The editor thinks this may be seen by some courts as a separate question from the one addressed here. 

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The Reporter for this item was Rod Clement of Jackson, Miss., writing in the Mississippi Bar Real Property Section Newsletter.  The editor has made non-substantive changes.

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